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Firewalls and Indirect Financial Interests

When a local government official co-owns a company, is it enough to
create a separate company owned solely by another co-owner to do
business with the official's city?

According to an
article in the Baton Rouge Advocate, this has become an
issue in Lofourche Parish. The parish sheriff co-owns an ignition
interlock device sales company. The device, which prevents drunken people from
starting their cars, is required to be used by certain people who have DWI
charges against them. The sheriff insists that the company he co-owns
does not "provide the services to any resident of Lafourche Parish nor
anyone arrested or convicted in the parish" and that he receives
nothing of economic value from sales in Lafourche Parish.

But here's how it works. When you're ordered to get a device, you ask
where you can get it. The deputy at the jail tells you to go to the
Chevrolet dealer or the co-owner's company. You go to the Chevy dealer,
who doesn't sell them (the sheriff's company has an exclusive
distribution agreement), and the Chevy dealer gives you a number to
call: the sheriff's cellphone number. Also, the sheriff is
responsible for arresting people who do not comply with the obligation
to use a device.

The real question here is, Does it matter, for the purposes of
government ethics, whether the official is benefiting or whether his
partner is benefiting? Is there a conflict when an
official's business associate benefits from government actions? The official does
not have a direct financial interest, but instead a personal or indirect financial interest, that is, an interest
in financially benefiting one's family or business associates. Such
personal or indirect financial interests are not always included in
ethics code definitions of conflicts of interest, but I believe they
should be. See the City Ethics Model Code conflicts provision and the Model Code definition of "personal interest."

This issue more commonly comes up with respect to law firms. An official creates a "firewall," which separates
him from any knowledge of what his partners are doing in a case
relating to the city or county. The official says he also gets no financial benefit from
the case.

One, this assumes that benefiting one's partners does not involve an interest that could create a conflict with the official's government obligations. And
two, it assumes that partners, whether selling devices or legal
services, divvy up the money in such a way that they actually take into
account the partner's conflict. This would be next to impossible to
prove,
especially in a law firm, where partnership shares are fluid. How can
anyone know that the official isn't being compensated from the
conflicting
activities?

Firewalls might work with a stock portfolio (although there are
problems there as well), but with sales and services by partners I don't
think a firewall makes a difference. It certainly shows an attempt to
keep things above board, but it misses the point that benefiting one's
business associates is itself a problem.

Update: November 28, 2009
According to an article in the Lafourche Parish Daily Comet, the Lousiana Ethics Adjudicatory Board unanimously dismissed the allegations against the sheriff, "ruling he did not use his office to make money selling devices designed to keep drunken drivers off the road." Without an indirect interest language, the matter boiled down to misuse of office, and this could not be proven.

I can now share with you the decision of the Ethics Adjudicatory Board, the board of administrative law judges created in 2008 to replace the state ethics board, which now acts only as investigator and prosecutor. It can be found here.

According to an article earlier this month in the New Orleans Times-Picayune, the state ethics board is trying to do what it can to get the Louisiana State Law Institute to take a look at the new law. The nonpartisan Public Affairs Research Council of Louisiana agrees. But the Institute says it won't do it unless the legislature asks for help, which doesn't seem likely.

Comments

Visitor (not verified) says:

Speaking of conflicts of interest, your organization CHARGES for its "ethics" consulting work, doesn't it? (Is it ethical to charge money for such services?) So wouldn't it be to your organization's economic advantage, in drumming up business for yourself, to try to find (or fabricate) as many possible "ethics violations" as possible? That way, you can solicit work from the so-called "offenders."

By the way, the Louisiana Division of Administrative Law has the decision posted on its website, as a pdf file. Why don't you share it with your readers?

Robert Wechsler says:

It was very thoughtful of you to anonymously aim innuendo at City Ethics. It must feel very good to imply that people who advise regarding something called "ethics" are so unethical that they fabricate "ethics violations" and then solicit work from those they accuse.

Sadly, it doesn't work that way. The ethics consulting work we charge for primarily involves advising government officials and bodies about their local government ethics programs.

City Ethics does not charge at all for the less involved advisory work we do for citizens, officials, journalists, and other government ethics professionals.

But thank you for pointing out that the administrative judges' decision became available online. I have linked to it, as I do to all decisions related to matters I write about.

Visitor (not verified) says:

Mr. Wechsler, I have read the City Ethics Model Code conflicts provision and the Model Code definition of "personal interest," and compared those provisions to the facts set forth in detail in the decision of the Louisiana Ethics Adjudicatory Board.

According to my reading of the Model Code provisions, even if the Louisiana Code of Ethics were to have incorporated those provisions, there still would have been NO VIOLATION of those provisions. Am I wrong? Would you be so kind as to point out the particular language in the Model Code definition of "conflicts of interest" and "personal interest" that would prohibit or sanction a SUPPOSED "personal interest" in "financially benefitting" one's non-family business associate with regard to a business WHOLLY SEPARATE from a joint business endeavor?

I'm not saying that, perhaps, an ideal code of ethics should not address such a situation. But the point is that according to my review of both the Louisiana Code of Ethics and the City Ethics Model Code, there was NO ETHICAL VIOLATION by the sheriff.

(Speaking of anonymous innuendo, why can't I access the link to "lafourcheunderground" on your site?)

Robert Wechsler says:

The definition of "personal interest" does refer to "business associates," but this term is not defined. So technically, you're right that this would not be a violation of a code that followed the Model Code language. But the first sentence of the comment to the Model Code's Conflict of Interest provision states:

"The central point of an ethics code is that city officials and employees should not prefer, over the public interest, their own interests or the interests of their family or business associates. There are other relationships that should be included in the above list, but cannot due to problems of defining them. These include romantic relationships short of domestic partnership, and close friends and associates."

No ethics code can deal with every eventuality. As I have emphasized again and again, ethics codes provide only minimum guidelines. If a code does not clearly state something is a violation, that does not mean it is ethical conduct. It only means that it is not a legal violation. If ethics means no more to an official than the language in an ethics code, that official does not understand government ethics and should seek out ethics training.

An ethics officer would most likely have advised the sheriff not to do what he did. I certainly would have. And I would recommend that he end the practice. Whatever the law says, it looks like he's acting so as to benefit his business partner and, possibly, indirectly, himself. This is harmful to the public's trust in its officials to be acting in the public interest.

Visitor (not verified) says:

I appreciate your prompt reply and observations. My questions were in fact directed to the issue of whether a "technical" violation of the Model Code would have been found under the circumstances, because an official can only be charged for a "technical" or "legal" violation of a code adopted to regulate conduct. It seems to me that simple fairness, if not due process, would require that mandatory ethical standards be as precisely defined as possible, and not amenable to vague, subjective interpretations of what is or is not "ethical."

Simply for clarity's sake, when you said that you would "have advised the sheriff not to do what he did," I take it that you were referring only to the one-time referral of the accused to the separate business owned by the partner.

Robert Wechsler says:

We clearly disagree about what is important in government ethics: legal language and causes of action, or the responsibly handling of possible conflicts. You care more about whether I was referring to a "one-time" referral than to whether an apparent conflict was dealt with responsibly by an official. We're practically speaking different languages.